S-Corporation Election Package (Form 2553 + State S-Election) — Oregon

S-CORPORATION ELECTION PACKAGE (FORM 2553 + OREGON STATE OVERLAY)

OVERVIEW

An S corporation is not a separate kind of entity. It is a federal tax classification, under Subchapter S of the Internal Revenue Code, available to a qualifying corporation or LLC that timely files IRS Form 2553. When the election is in effect, the entity generally pays no federal income tax; instead, items of income, loss, deduction, and credit pass through to the shareholders, who report them on their personal returns. This avoids the "double taxation" of a C corporation.

Why elect S status:

• Pass-through taxation — no entity-level federal income tax (26 U.S.C. § 1363).
• Potential self-employment / payroll tax savings: only a shareholder-employee's reasonable compensation (W-2 wages) is subject to FICA; distributions beyond reasonable compensation are not.
• Limited liability of the underlying corporation or LLC is retained.

Why an Oregon owner should care about the state overlay:

• Oregon recognizes the federal S election automatically — there is no separate Oregon S election form. See Part 5.
• The Oregon S corporation files Form OR-20-S (Oregon S Corporation Tax Return).
• CAUTION — Oregon minimum excise tax. Oregon imposes a minimum excise tax on S corporations doing business in Oregon under ORS 317.090 — a minimum of $150 — even when the S corporation owes no measured tax. This minimum is payable by the S corporation itself and is not passed through to shareholders. See Part 5.
• Oregon offers an optional Pass-Through Entity Elective (PTE-E) tax (SB 727 (2021)) — a federal SALT-cap workaround filed on Form OR-21.

Entity / filing fields (complete before filing):

PART 1 — FEDERAL ELIGIBILITY CHECKLIST (IRC § 1361)

Confirm EVERY item below before filing Form 2553. A single failure makes the entity ineligible and any election invalid.

Entity-level requirements

☐ The entity is a domestic corporation or an eligible domestic entity (e.g., an LLC) electing to be treated as a corporation (26 U.S.C. § 1361(b)(1)).
☐ The entity has no more than 100 shareholders (§ 1361(b)(1)(A)). Members of a family (a common ancestor, lineal descendants, and their spouses/former spouses) may be counted as one shareholder under § 1361(c)(1).
☐ The entity has only ONE class of stock (§ 1361(b)(1)(D)). Differences in voting rights alone are permitted; differences in distribution or liquidation rights are not.
☐ The entity is not an ineligible corporation under § 1361(b)(2) (e.g., a financial institution using the reserve method of accounting for bad debts, an insurance company taxed under subchapter L, a possessions-tax-credit corporation, or a current/former DISC).

Shareholder eligibility (§ 1361(b)(1)(B)–(C))

☐ Every shareholder is an eligible shareholder: an individual (U.S. citizen or resident), an estate, a qualifying trust, or a § 401(a) / § 501(c)(3) tax-exempt organization.
☐ No shareholder is a nonresident alien (§ 1361(b)(1)(C)).
☐ No shareholder is a partnership or a corporation.
☐ Any trust shareholder is a permitted trust: a grantor trust, a former-grantor trust (2-year window), a testamentary trust (2-year window), a voting trust, a Qualified Subchapter S Trust (QSST) (§ 1361(d)), or an Electing Small Business Trust (ESBT) (§ 1361(e)).

PART 2 — FEDERAL FORM 2553, LINE BY LINE

Part I — Election Information

Part II — Selection of Fiscal Tax Year

Complete only if the entity wants a tax year other than the required year (generally the calendar year). State the business-purpose basis (e.g., § 444 election, natural business year under Rev. Proc. 2006-46, or ownership tax year).

Part III — QSST Election

A Qualified Subchapter S Trust beneficiary uses Part III (or a separate statement under § 1361(d)(2)) to elect QSST treatment so the trust qualifies as an eligible shareholder.

Part IV — Late Corporate Classification Election Representations

Used when the entity also seeks late S-election relief (and, for an LLC, a deemed entity classification election). See timing and relief below.

Timing of the election (26 U.S.C. § 1362(b))

• Timely election: file by the 15th day of the 3rd month of the tax year the election is to take effect, or at any time during the immediately preceding tax year.
• New entities: the first tax year begins on the earliest of when the corporation has shareholders, acquires assets, or begins doing business; file within 2 months and 15 days of that date.
• Late-election relief — Rev. Proc. 2013-30: if the deadline is missed, relief is generally available if (1) the entity intended to be an S corp as of the intended effective date, (2) the only reason it is not an S corp is the missed/defective filing, (3) there is reasonable cause and the entity acted diligently, and (4) the relief request is filed within 3 years and 75 days of the intended effective date. Write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553 and attach a reasonable-cause statement signed by all shareholders.

Filing method

Form 2553 is filed by mail or fax to the IRS service center designated in the current instructions for the entity's state. Electronic filing of a standalone Form 2553 is not generally available; it may be attached to a timely filed Form 1120-S for certain late elections. Retain the IRS acceptance notice (CP261) permanently.

PART 3 — SHAREHOLDER CONSENT STATEMENT (ALL SHAREHOLDERS MUST CONSENT)

Every shareholder on the effective date (and, for a preceding-year election, those who held stock during that prior period) must consent. Reproduce and attach extra rows as needed.

By signing, each shareholder consents to the S corporation election under 26 U.S.C. § 1362(a) and represents that the information provided is true and correct.

PART 4 — ENTITY INTERPLAY (LLC ELECTING S STATUS)

An LLC is, by default, a disregarded entity (single member) or a partnership (multi-member). To be taxed as an S corporation it must first be classified as an association taxable as a corporation.

• A single Form 2553, filed on time, lets an eligible LLC elect S status without separately filing Form 8832 (Entity Classification Election). A timely, properly completed Form 2553 is treated as a deemed Form 8832 corporate-classification election effective on the same date (Treas. Reg. § 301.7701-3(c)(1)(v)(C)).
• If the LLC wants corporate (C) classification effective on a different date than the S election, file Form 8832 separately.
• Confirm the LLC operating agreement does not create a second class of stock (e.g., disproportionate distribution/liquidation rights or preferred returns), which would void S eligibility.

PART 5 — OREGON STATE S-CORP OVERLAY

Recognition rule — AUTOMATIC (no separate Oregon election)

Oregon automatically recognizes the federal S election. There is no separate Oregon S-corporation election form. An entity that is a Subchapter S corporation for federal purposes is treated the same way for Oregon purposes; income generally passes through to the shareholders, who report it on their Oregon individual returns. An LLC taxed as an S corporation federally is treated the same way for Oregon purposes.

Return / form

• The Oregon S corporation files Form OR-20-S — Oregon S Corporation Tax Return.
• Due by the 15th day of the month following the federal due date for the S corporation's return — generally the 15th day of the 4th month after year end (an extra month beyond the federal date) — [confirm current Oregon due date for the applicable tax year]; a federal extension is recognized.

⚠ CAUTION — OREGON MINIMUM EXCISE TAX ($150 MINIMUM ON S CORPORATIONS)

All S corporations doing business in Oregon must pay the Oregon minimum excise tax — a minimum of $150 — under ORS 317.090. This minimum applies even if the S corporation has no net income or owes no measured tax, and it is payable by the S corporation itself (it is not passed through to the shareholders). The minimum excise tax is reported and paid with Form OR-20-S. (For C corporations the minimum tax is graduated by Oregon sales under ORS 317.090(2); the $150 minimum is the floor that applies to S corporations.)

Entity-level (measured) income tax

• Apart from the minimum excise tax, an Oregon S corporation generally pays no measured Oregon corporate tax on its pass-through income; the income flows to shareholders.
• Built-in gains and excess net passive income that are taxed federally at the corporate level may correspondingly be subject to Oregon measured tax (compared against the $150 minimum, the larger amount applies).

Nonresident shareholders — composite return (ORS 314.778)

• A pass-through entity with Oregon-source distributive income must file a composite return of personal income / corporate excise or income tax on behalf of nonresident owners that elect to be included (ORS 314.778). The composite return is filed only if one or more nonresident owners elect.
• The election is irrevocable and made in the time, form, and manner prescribed by the Department of Revenue. An electing owner may still file an Oregon nonresident return and claim a subtraction for the share reported on the composite return.
• Oregon residents may not join a composite filing.

Optional Pass-Through Entity Elective (PTE-E) tax — SALT-cap workaround (SB 727 (2021))

• Oregon created the Pass-Through Entity Elective (PTE-E) tax in July 2021 (SB 727) as a business alternative income tax responding to the federal $10,000 SALT-deduction cap. For tax years beginning on or after January 1, 2022, entities taxed as S corporations and partnerships may elect annually to pay tax at the entity level.
• Rate: 9% on the first $250,000 of distributive proceeds and 9.9% on amounts over $250,000.
• The election is made by filing Form OR-21 by the due date (incl. extensions) — there is no separate election form; the return must be filed electronically (Revenue Online or approved software). Late returns are not accepted, and no election is made if no return is filed.
• Qualifying members claim a credit equal to 100% of their distributive share of the PTE-E tax paid. The PTE may elect only if all members are individuals (or pass-throughs owned entirely by individuals subject to ORS ch. 316).
• [Verify expiration / extension for the applicable tax year — the PTE-E law is tied to the federal SALT cap and has been subject to legislative extension.]

Other Oregon items to confirm

☐ Maintain good standing with the Oregon Secretary of State (annual reports for corporations and LLCs).
☐ Register for Oregon statewide transit tax / payroll and (if applicable) the Corporate Activity Tax (CAT, ORS ch. 317A) — [verify whether the entity's Oregon commercial activity exceeds the CAT threshold].
☐ Register for Oregon withholding and unemployment before paying shareholder-employee wages.

PART 6 — POST-ELECTION COMPLIANCE

☐ Reasonable compensation. A shareholder who performs services must be paid reasonable compensation as W-2 wages before taking distributions; the IRS may recharacterize disguised wages and assess back FICA, penalties, and interest.
☐ Payroll setup. Run payroll, withhold and deposit federal and Oregon income tax and FICA, and file Forms 941/940 and Oregon withholding returns.
☐ Distributions. Distributions to shareholders are generally tax-free to the extent of stock basis and the accumulated adjustments account (AAA); track basis carefully (§ 1367).
☐ Built-in gains tax (§ 1374). If the entity converted from C-corporation status, gain on pre-conversion appreciated assets sold within the 5-year recognition period is taxed at the entity level.
☐ Passive investment income (§ 1375). If the entity has accumulated C-corporation earnings and profits and passive investment income exceeds 25% of gross receipts, an entity-level tax applies; exceeding 25% for 3 consecutive years terminates the S election (§ 1362(d)(3)).
☐ One class of stock maintained. Avoid side agreements, disproportionate distributions, or debt that could be reclassified as a second class of stock.
☐ Oregon minimum excise tax paid. Pay the $150 minimum with Form OR-20-S each year the entity does business in Oregon.
☐ Composite / PTE-E. File a composite return (ORS 314.778) for electing nonresident shareholders and/or make the PTE-E election (Form OR-21) if beneficial.
☐ Annual federal/state returns. File Form 1120-S with Schedules K-1 federally and Oregon Form OR-20-S with the Oregon shareholder schedules.
☐ Recordkeeping. Retain Form 2553, the CP261 acceptance notice, shareholder consents, stock/ownership records, and minutes permanently.

PART 7 — REVOCATION / TERMINATION (26 U.S.C. § 1362(d))

Voluntary revocation (§ 1362(d)(1))

☐ Shareholders holding more than 50% of the outstanding shares (voting and nonvoting) must consent.
☐ File a revocation statement with the IRS (no official form; a signed letter identifying the entity, EIN, and effective date, with shareholder consents).
☐ Effective date: if filed by the 15th day of the 3rd month of the tax year, it is effective the first day of that year; otherwise the first day of the following tax year. A prospective date may be specified.

Automatic termination (§ 1362(d)(2)–(3))

Termination is automatic if:
☐ The entity ceases to qualify as a small business corporation (e.g., exceeds 100 shareholders, an ineligible shareholder acquires stock, or a second class of stock is created) — effective on the date of the disqualifying event.
☐ The entity has C-corporation E&P and passive investment income exceeds 25% of gross receipts for 3 consecutive tax years — terminating at the start of the next year.

Five-year re-election bar (§ 1362(g))

After revocation or termination, the entity generally may not re-elect S status for 5 tax years without IRS consent.

Oregon effect

Because Oregon follows the federal classification, a federal revocation/termination ends Oregon S treatment for the same period; the entity then files as a C corporation on Oregon Form OR-20 (Corporation Excise Tax Return). The Oregon minimum tax continues to apply (graduated by Oregon sales for C corporations under ORS 317.090(2)).

SIGNATURE BLOCK

Authorized Officer

Signature: _________________________________________
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

SOURCES AND REFERENCES

• 26 U.S.C. §§ 1361–1368, 1374, 1375 (Subchapter S)
• 26 U.S.C. § 1362 (election, revocation, termination)
• IRS Form 2553 and Instructions; IRS Notice CP261
• Rev. Proc. 2013-30 (late election relief); Treas. Reg. § 1.1362-6; Treas. Reg. § 301.7701-3 (entity classification)
• ORS 317.090 (Oregon minimum excise tax — $150 minimum for S corporations)
• ORS 314.778 (composite returns of pass-through entities) — https://oregon.public.law/statutes/ors_314.778
• SB 727 (2021) — Pass-Through Entity Elective (PTE-E) tax — Form OR-21
• Oregon Department of Revenue — Form OR-20-S Instructions — https://www.oregon.gov/dor
• Oregon Department of Revenue — Pass-Through Entity Elective (PTE-E) Tax — https://www.oregon.gov/dor/programs/businesses/pages/pass-through-entity-elective-tax.aspx